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Source: Military Times
A proposal that would transform the military retirement system by promising smaller monthly checks but also giving troops a lump sum "transition pay" immediately upon retirement could turn out to be very popular among most service members, according to a new study.
The study published Wednesday by the RAND Corp. think tank looked in detail for the first time at how today's 1.4 million active-duty troops might respond to a sweeping overhaul of the traditional military retirement system.
The results suggest that many troops, given a choice, would prefer to take an end-of-career payout, probably amounting to about 2½ years of their annual basic pay, in exchange for smaller monthly checks during their so-called "working-age retirement" years before age 65.
The 223-page report delves into the controversial proposal for retirement reform that the Pentagon released in March. That plan would preserve the current system's defining feature of 20-year, "cliff-vesting," fixed-income payments. But it would ultimately provide smaller monthly checks.
The new data suggests that transitioning to a new retirement system might not be as controversial as originally thought because today's troops might voluntarily embrace the new system — if it is designed well.
Any change in military retirement will require congressional approval, which is unlikely to happen until next year at the earliest.
The Defense Department's proposal is rooted in the belief that troops place more value on cash up front compared to the promise of technically more generous benefits doled out later in life.
To compensate career service members for smaller payments, DoD would offer three new cash payments long before old age — a 401(k)-style defined contribution benefit awarded to all troops who serve at least six years, a cash retention bonus at about 12 years of service and lump-sum "transition pay" given to separating troops who serve 20 years or more.
All the variants of DoD's new retirement proposal would save the military some money by ultimately reducing the retirement "multiplier" used to calculate monthly retirement checks.
Virtually everyone agrees that troops serving today would be grandfathered under the current system. Yet some proposals suggest that currently serving troops could be permitted to voluntarily opt into a new system if and when it becomes law.
The new RAND study looked at how troops might respond to that choice under several variants of the proposed system. RAND uses complex computer models to estimate how thousands of troops will respond to individual career decisions.
The new study concluded that the retirement system most attractive to service members is one that offers a large "transition pay" of up to three years of basic pay upon separation but would cap retirement checks for working-age retirees at no more than 25 percent of basic pay.
The vast majority of enlisted members with less than 20 years of service would voluntarily opt into that retirement system if given a choice, according to the study. But RAND believes most officers with more than five years of service would choose to stay with the current retirement system.
Troops would be far less likely to voluntarily opt into an alternative proposal that offers only modest transition pay — half a year of basic pay — and full monthly retirement checks during the working-age retirement years.
In that case, volunteers for the new system would be found mostly among the most junior service members. No troops beyond seven years of service would likely choose to opt into a new retirement plan offering small cash transition payments.
Under today's military compensation system, taxpayers set aside an accrual payment equal to about 42 percent of every service member's annual basic pay in order to cover the costs of future retirement payments.
The defense budget would benefit from a retirement plan that encourages many of today's troops to opt in because it would allow Pentagon accountants to immediately reduce the amount of money required for those out-year accrual payments.
http://www.armytimes.com/story/military/benefits/retirement/2014/11/12/new-rand-retirement-report/18923279/
A proposal that would transform the military retirement system by promising smaller monthly checks but also giving troops a lump sum "transition pay" immediately upon retirement could turn out to be very popular among most service members, according to a new study.
The study published Wednesday by the RAND Corp. think tank looked in detail for the first time at how today's 1.4 million active-duty troops might respond to a sweeping overhaul of the traditional military retirement system.
The results suggest that many troops, given a choice, would prefer to take an end-of-career payout, probably amounting to about 2½ years of their annual basic pay, in exchange for smaller monthly checks during their so-called "working-age retirement" years before age 65.
The 223-page report delves into the controversial proposal for retirement reform that the Pentagon released in March. That plan would preserve the current system's defining feature of 20-year, "cliff-vesting," fixed-income payments. But it would ultimately provide smaller monthly checks.
The new data suggests that transitioning to a new retirement system might not be as controversial as originally thought because today's troops might voluntarily embrace the new system — if it is designed well.
Any change in military retirement will require congressional approval, which is unlikely to happen until next year at the earliest.
The Defense Department's proposal is rooted in the belief that troops place more value on cash up front compared to the promise of technically more generous benefits doled out later in life.
To compensate career service members for smaller payments, DoD would offer three new cash payments long before old age — a 401(k)-style defined contribution benefit awarded to all troops who serve at least six years, a cash retention bonus at about 12 years of service and lump-sum "transition pay" given to separating troops who serve 20 years or more.
All the variants of DoD's new retirement proposal would save the military some money by ultimately reducing the retirement "multiplier" used to calculate monthly retirement checks.
Virtually everyone agrees that troops serving today would be grandfathered under the current system. Yet some proposals suggest that currently serving troops could be permitted to voluntarily opt into a new system if and when it becomes law.
The new RAND study looked at how troops might respond to that choice under several variants of the proposed system. RAND uses complex computer models to estimate how thousands of troops will respond to individual career decisions.
The new study concluded that the retirement system most attractive to service members is one that offers a large "transition pay" of up to three years of basic pay upon separation but would cap retirement checks for working-age retirees at no more than 25 percent of basic pay.
The vast majority of enlisted members with less than 20 years of service would voluntarily opt into that retirement system if given a choice, according to the study. But RAND believes most officers with more than five years of service would choose to stay with the current retirement system.
Troops would be far less likely to voluntarily opt into an alternative proposal that offers only modest transition pay — half a year of basic pay — and full monthly retirement checks during the working-age retirement years.
In that case, volunteers for the new system would be found mostly among the most junior service members. No troops beyond seven years of service would likely choose to opt into a new retirement plan offering small cash transition payments.
Under today's military compensation system, taxpayers set aside an accrual payment equal to about 42 percent of every service member's annual basic pay in order to cover the costs of future retirement payments.
The defense budget would benefit from a retirement plan that encourages many of today's troops to opt in because it would allow Pentagon accountants to immediately reduce the amount of money required for those out-year accrual payments.
http://www.armytimes.com/story/military/benefits/retirement/2014/11/12/new-rand-retirement-report/18923279/
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